Business Context and Reporting Period
Company: BRT Apartments Corp.
Filing Type: Form 8-K (Current Report)
Date of Report: April 20, 2020 (Event Date)
Reporting Period: The filing addresses a material weakness in internal controls identified as of March 31, 2018, and requires the restatement of financial statements for the period from March 31, 2018, through November 7, 2019 (the "Relevant Period").
Key Financial Metrics and Accounting Changes
The filing does not provide specific numerical values for revenue, profit, or cash flow for the current period. Instead, it details a significant accounting restatement:
- Accounting Method Change: The company will de-consolidate three properties (The Avenues Apartments, Parc@980, and Vive at Kellswater) and report them under the equity method of accounting.
- Impact on Metrics: This change will reduce reported revenues, operating expenses, assets, and liabilities for the Relevant Period.
- Unaffected Metrics: The restatement will not impact previously reported net income attributable to common stockholders, funds from operations (FFO), adjusted funds from operations (AFFO), cash flows, capital resources, liquidity, or the ability to pay dividends.
- Outstanding Review: The company is seeking guidance from the SEC regarding the consolidation status of 24 other properties historically consolidated.
Material Changes Versus Prior Period
The primary material change is the identification of a material weakness in internal control over financial reporting. Previously issued financial statements (10-Ks and 10-Qs) and earnings press releases for the Relevant Period should no longer be relied upon. The company has restated balance sheets as of September 30, 2019, and December 31, 2018, and statements of operations for the nine months ended September 30, 2019, and the twelve months ended December 31, 2018.
Guidance, Outlook, Risks, and Contingencies
- Regulatory Guidance: The company has requested guidance from the SEC's Office of the Chief Accountant regarding the consolidation of its remaining 24 properties. Future filings, including the 2019 Annual Report, depend on this guidance.
- Internal Controls: Management intends to report the material weakness in the 2019 Annual Report and create a remediation plan. There is no assurance that remedial measures will be effective.
- COVID-19 Risks: The filing updates risk factors to include the potential material adverse effects of the novel coronavirus (COVID-19) on occupancy levels, tenant ability to pay rent, and the company's ability to exercise remedies against non-paying tenants due to new legislation.
- Forward-Looking Statements: Results may differ materially due to the ongoing review of financial statements, the preparation of restated filings, and potential additional adjustments.
Investor Verification Checklist
- Verify the specific impact of the de-consolidation on the company's total asset base and leverage ratios once the restated financial statements are fully analyzed.
- Monitor the outcome of the SEC guidance request regarding the consolidation status of the remaining 24 properties.
- Review the company's remediation plan for the identified material weakness in internal controls.
- Assess the actual impact of COVID-19 on occupancy rates and rental revenue in subsequent quarterly reports.
- Confirm that the restatement does not alter the company's dividend policy or liquidity position as stated in the filing.